VAT panel meets FM to work out CST package

States sought a package to compensate for revenue loss estimated at over Rs 9,000 cr on account of the proposed cut in CST from 4-2% next fiscal.

indiaUpdated: Feb 17, 2006 20:12 IST

Press Trust of India None

Ahead of the Union Budget, states on Friday asked the Centre to come up with a package to fully compensate them for revenue loss estimated at over Rs 9,000 crore on account of the proposed cut in Central Sales Tax from 4-2 per cent next fiscal.

The Empowered Committee on Value Added Tax held detailed discussions with Finance Minister P Chidambaram to chalk out a strategy for CST phase out from April 2006.

"Since there is a decision of the Empowered Committee that CST will be reduced from 4-2 per cent from April, there is a pre-condition that Centre should provide full compensation. We discussed ways of low the loss of states could be compensated," VAT panel chairman Dasgupta said after the meeting.

Dasgupta, who is also West Bengal finance minister, declined to divulge details of the options that Centre and states were exploring for the compensation package, saying it would not be fair to comment now as the Budget exercise was on.

The VAT panel will again meet the Finance Minister on middle of March to thrash out the details of the compensation package, he said.

States now collect about Rs 18,000 crore in CST which is passed on to them by Centre. Cut in CST from 4 to 2 per cent would mean a revenue loss of at least Rs 9,000 crore.

VAT panel had made it clear that Centre has to factor in not only the current collection levels of CST but also its possible growth before deciding on its compensation.

The panel had earlier proposed a slew of options like VAT on sugar, tobacco and textile, which attract Additional Excise Duties and are now out of the purview of VAT. It had also proposed VAT on imports.

The states may also explore the possibility of a slight increase in VAT rates, now at 4 per cent for inputs and 12.5 per cent for final goods, to offset the losses from CST phase out.

In its earlier meeting, states also demanded more powers to collect taxes especially Service Taxes, so that the overall tax kitty swells and they get a higher amount as part of their share from the central divisible pool.

The Finance Minister had earlier agreed to take a positive attitude towards the demands of the states but asked the VAT panel to find innovative ways of raising revenues, as there was little scope for a budgetary support.